That is like asking “why do I need to brush my teeth?” Teeth need to be kept clean so they don’t go rotten, cause a lot of pain and fall out.
Businesses, even sole proprietorships, need to maintain an efficient bookkeeping system so that they don’t fall apart financially, cause a lot of stress and go out of business.
Bookkeeping is a basic requirement for any business, sadly this process is often neglected and could have a negative effect on a business. Whether you are a big or small business, you need to ensure proper recording of all financial transactions in a professional and orderly manner.
There are three very important financial reports to be maintained:
- Cash flow statement
- Profit and loss account
- Balance sheet
Most business who prosper watch their numbers intensely. Their banks and accounts are reconciled regularly. All expenses are captured and posted. The owners set monthly deadlines to review the financial reports and react accordingly.
Regardless of how busy you are, once invoices are delayed, no follow-ups on customer payments are done and you are failing to promptly pay suppliers, will eventually crash you down. Your company’s sales can by sky high, if you don’t collect the money, if the money is not in the bank or if you don’t even know how much you are spending to make a sale, your business may not be prospering and you may not even know it. Bookkeeping systemize this process in a manageable and efficient manner to provide you with valuable financial information on your business. Bookkeeping is the backbone of the practice of accounting.
Tax preparation is a key reason to maintain a detailed set of books. It is also important to know how much money your business is bringing in as well as how and where the money is being spent. Compare your results to industry standards to determine where you need to improve your business model. You should also compare this year’s sales and expenses to prior years to note your progress.
Another reason to have a good set of maintained management reports is to satisfy a lender who will certainly require them who will evaluate your qualification for a business loan.
It is a given that every serious business owner should consider bookkeeping and when you require good bookkeeping, you need to choose a company that you can rely on to provide you with the service that are both accurate and efficient.